1) Which of the following events must result in a higher price in the market for cigars?
a.Demand for cigars increases, and supply of cigars decreases.
b.Demand for cigars and supply of cigars both decrease.
c.Demand for cigars decreases, and supply of cigars increases.
d.Demand for cigars and supply of cigars both increase
2) The revenue that the federal government collects from payroll taxes is earmarked to
pay for
a.national defense and income security (welfare) programs
b.national defense and Medicare
c.Social Security and public schools
d.Social Security and Medicare
3) The factors of production are best defined as the
a.output produced from raw materials.
b.inputs used to produce goods and services.
c.wages paid to the workforce.
d.goods and services sold in the market.
4) A consumer’s optimal choice is affected by income, prices of goods, and preferences.
a.True
b.False
5) If A is preferred to B and C is preferred to D, then B must be preferred to C to satisfy
transitivity.
a.True
b.False
6) Taxes on labor encourage all of the following except
a.older workers to take early retirement from the labor force.
b.mothers to stay at home rather than work in the labor force.
c.workers to work overtime.
d.people to be paid “under the table.”
7) Assume that a college student spends her income on mac-n-cheese and CDs. The
price of one box of mac-n- cheese is $1, and the price of one CD is $12. If she has $200
of income, she could choose to consume
a.30 boxes of mac-n-cheese and 12 CDs.
b.40 boxes of mac-n-cheese and 14 CDs.
c.20 boxes of mac-n-cheese and 16 CDs.
d.60 boxes of mac-n-cheese and 12 CDs.
8) Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At
her profit-maximizing level of output, her average total cost of production is $7.00, and
her average variable cost of production is $6.00. Which of the following statements
about Mrs. Smith‘s firm is correct?
a.Mrs. Smith is earning a loss and should shut down in the short run.
b.Mrs. Smith is earning a loss but should continue to operate in the short run.
c.Mrs. Smith is earning a profit since the price is above the average variable cost.
d.Without knowing Mrs. Smith‘s marginal cost, we cannot determine whether she
should stay in business or shut down.
9) Figure 10-9